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Asian rust — much ado or real threat?

Mar 3, 2005 9:50 AM, By Elton Robinson

MEMPHIS, Tenn. -- Asian soybean rust might cause a few price blips in the coming growing season, but it’s not likely to have a lasting impact on the market because of huge soybean supplies here and around the world, according to grain marketing analyst Richard Brock.

In this article, Brock, who publishes the weekly newsletter The Brock Report, discusses a few of the issues he’ll cover as a featured speaker at the 2005 Mid-South Farm and Gin Show, March 4-5 at the Cook Convention Center, in downtown Memphis. He’ll speak Saturday morning, March 5, at 8:30 a.m.:

What’s the biggest negative for soybean prices today?

We have the largest soybean supply in history in the United States and the world. It is enormous. Even with lower acreage and average yields this year, U.S. soybean carryover is going to increase substantially. Right now, it’s forecast at 444 million bushels, compared to 112 million bushels last year. This coming year, our forecast is 677 million bushels.

Is the market tuned into Asian soybean rust?

The soybean market is as high as it is because of Asian rust. It is the anticipation that we are going to have a catastrophe in this market. It can also be very negative for prices. Anticipated (production) problems support a market, then when they don’t materialize, you get (market) problems.

You don’t believe that the Asian rust will result in severe yield declines in the United States?

We’re already seeing that it hasn’t hurt yield significantly in South America. The rust is pretty much under control, and I think we’ll find the same thing here. We are anticipating a problem that is likely not going to happen.

Would you anticipate some price reaction if we discover Asian rust in the U.S. soybean crop?

There’s no question that any time it’s discovered, it’s going to result in price strength. We are going to have an extremely volatile market this summer. But it’s going to have to be a severe loss for rust to have a positive impact long-term. I’m not saying it can’t give you a 40-cent to 50-cent rally when it’s discovered. But those rallies won’t sustain themselves in this type of year.

Where do you see U.S. soybean acreage in 2005?

I’m in the camp that we won’t see any reduction in soybean acreage in the United States. In fact, we may see a slight increase. We’re also seeing a significant increase in soybean planted acreage in the northern Corn Belt. The thinking is that the increase will offset fewer planted acres in the South. But the rust issue is going to keep this market on its toes.

What do you think about planted acreage in Brazil for the coming season?

The worst thing that happened to the American farmer was to have $10 beans last spring. But with lower prices, acreage in Brazil will drop precipitously. Without a government program to help support their market, when our bean prices are high, they develop land and turn on the spigot. When prices are low, they can’t cash flow. So with low prices, we will see a lot of that land go back into pastures.

Could you talk about soybean prices short-term and long-term?

For the short term, by the time we get into late summer or early fall and Asian rust hasn’t wiped out a lot of the crop, either in South America or here, we’re going to have some real financial stress on the way. Longer-term, unless we have a crop problem, I think you can paint a fairly positive picture for soybeans. But it’s at least a year and half out. Tops are short-lived in the market, bottoms are long.

Are Brazilian soybean producers profitable at today’s prices?

Absolutely not. They’re losing enormous amounts of money. Farmland prices in northeastern Mato Grosso, which is where the development is taking place, have dropped by 50 percent in the last four months. To calculate what they’re getting for their beans, take the futures price less a dollar; that’s what they’re getting after transportation costs. It won’t cash flow.

What kind of marketing strategies can help U.S. soybean producers?

You have to be an aggressive forward marketer, particularly in the soybean market. We have fairly decent carry for the next six months. With our producers, we are hedged out a year and a half in soybeans. We’re about a buck and a half higher than where the market is right now on 80 percent of next year’s (soybean) crop and 75 percent of next year’s corn. The problem right now is that the market has slipped enough that a person would not want to be aggressive now. But at any kind of price strength, you have to be a forward seller in this market.

What’s the outlook for corn?

Within a year, we will crush more corn in ethanol plants that we will export. Long-term, there is an incredible demand increase for corn. But that’s looking out two years or more. In the meantime, we have way too much corn, even with the increase in ethanol production. Out past two years, I would be real bullish on both corn and soybeans.

Are we in danger of building too much ethanol capacity in the United States?

I think there is still a lot of growth potential. We’re requiring a 10 percent ethanol blend in only a very few, small markets. Brazil requires an 85 percent blend throughout the entire country. I think there is enormous potential. I think it’s here to stay. We could see some cutback in ethanol demand if the oil market drops precipitously, which is a possibility. But right now, we have more demand than we have product.

e-mail: erobinson@primediabusiness.com